Black and ethnic minority workers face a £3.2bn annual pay penalty

Britain’s 1.9 million black, Indian, Pakistani and Bangladeshi employees are experiencing an annual pay penalty of £3.2bn according to new analysis published today (Thursday) by the Resolution Foundation.

The Foundation says that the scale of pay penalties facing BAME (black, Asian and minority ethnic) workers should prompt government action, including building on the success of its requirement for firms to report gender pay gaps by making large firms report on their BAME pay gaps too.

The new analysis uncovers the scale of this lost income across the workforce, as well as the individual pay penalties faced by workers from different groups.

The Foundation notes that BAME workers have long earned less, on average, than white male workers, and that these ‘pay gaps’ are in part due to differences in workers’ qualification levels and the types of jobs they do.

However, the Foundation’s analysis controls for this and converts these pay gaps into pay penalties by taking into account factors such as a worker’s occupation, contract-type, industry, education level and degree class in its calculations.

The analysis reveals that even after accounting for these differences, black, Indian, Pakistani and Bangladeshi workers still face significant pay penalties compared to white workers with identical characteristics doing the same types of jobs. It adds that other groups are also likely to face penalties, though a lack of data means calculating this is not possible.

When looking at non-graduates, Pakistani and Bangladeshi men face the biggest pay penalties at £1.91 an hour (14 per cent), while black male non-graduates face a pay penalty of £1.31 an hour (9 per cent). The pay penalties for female non-graduates, while lower, are still significant at 55p for Bangladeshi and Pakistani women (5 per cent), 61p for black women (6 per cent), and 44p for Indian women (4 per cent).

One of the most positive labour market trends in recent decades has been the rapid increase in the proportion of BAME graduates. However, the analysis shows that having a degree does not end the pay penalties facing BAME workers. In fact, black male graduates face the biggest pay penalties of all groups included in the research, with an average penalty of £3.90 an hour (17 per cent), while Pakistani and Bangladeshi male graduates face a pay penalty of £2.67 an hour (12 per cent). Among female graduate workers, black women face the biggest pay penalty of £1.62 an hour (9 per cent).

These statistics represent a large number of individuals potentially affected by the penalties. In 2017, there were 154,000 black male graduate employees in the UK, 202,000 black male non-graduate employees, 152,000 Pakistani/Bangladeshi male non-graduate employees and 124,000 Pakistani/Bangladeshi male graduate employees. The number of black female graduate employees (a group facing a pay penalty of 9 per cent) was 185,000.

Combining individual pay penalties above with the number of workers affected, the Foundation’s analysis highlights the scale of the ‘lost pay’ facing the BAME workforce, who have been collectively losing out on an average £3.2bn a year (based on data collected between 2007 and 2017). The Foundation says that such a loss represents a huge blow to the living standards of those affected.

The Foundation says the government should take action to address these pay penalties, and can learn from the success of its recent legislation to require firms to publish their gender pay gaps. This action, which came into effect in April this year, has shone light on the extent of the problem and put pressure on firms to address their pay gaps. It acknowledges that collecting data on ethnicity and pay presents more challenges, given the smaller number of workers, but doing so is essential to providing an accurate picture.

However, the Foundation notes that with only 3 per cent of employers voluntarily reporting their ethnic pay gaps – ITN, one of the companies that did so, found that its BAME employees are paid 21 per cent less per hour than white employees – the government will need to act to require large firms to report on this too.

Kathleen Henehan, Research and Policy Analyst at the Resolution Foundation, said:

“Black, Asian and minority ethnic (BAME) workers have made important gains in the labour market in recent years. A record number of young BAME workers have degrees, and a record number are in work.

“However, despite this welcome progress, many of Britain’s 1.6 million black, Asian and ethnic minority workers face significant disadvantages in the workplace. Black and ethnic minority workers still suffer significant pay penalties compared to white men and women doing the same types of jobs, and are collectively losing out on £3.2bn a year.”

“After the successful steps taken to expose and tackle the gender pay gap in 2018, we now need greater accountability on the ethnic pay gap in 2019. The government can make this happen by requiring large firms to report their BAME pay gaps alongside the reporting they’re already doing on gender. The results should give firms an extra incentive to tackle these issues.”